Affordable housing finance
Utility allowance
The estimated cost of tenant-paid utilities, netted out of the gross-rent limit under 26 C.F.R. § 1.42-10 — collectible rent is ceiling minus allowance.
Definition
When tenants pay their own utilities, LIHTC gross rent must include an allowance for them, so the rent the owner can actually collect is the published ceiling minus the allowance. 26 C.F.R. § 1.42-10 governs the permissible sources — public housing authority schedules by default, with alternatives including utility-company estimates, the HUD Utility Schedule Model and energy-consumption models — and requires the allowance be reviewed annually, with rent adjustments taking effect within 90 days of a change. Buildings carrying RD or HUD regulation follow their own utility rules first.
Why it matters in an underwrite
Allowances are pure revenue arithmetic: every allowance dollar is a rent dollar foregone, on every restricted unit, every month. Sponsors increasingly commission engineered estimates instead of default PHA schedules — on efficient new construction the difference can run to tens of dollars per unit per month — but the methodology must be one § 1.42-10 permits and must be kept current; a stale or unsupported allowance is a rent-limit violation and a standing Form 8823 category.
Sources & related guides
See also
See the term in the law itself
Read the controlling text in the Code Library, or ask the AI how it applies to your project.
Last reviewed 2026-07-29. General information, not legal advice.